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Cash Budgeting Sinead Sammon provides the following information in May 2008: € Debtors 01/06/2008 (made up of April sales €52,000 and May sales €63,000) 115,000 Creditors 01/06/2008 44,000 Bank Balance 01/06/2008 34,000 She expects her sales, purchases and expenses for the next five months to be: June € Sales 59,000 Purchases 36,000 Expenses 12,000 July € Sales 67,000 Purchases 44,000 Expenses 17,000 August € Sales 75,000 Purchases 54,000 Expenses 14,000 September € Sales 83,000 Purchases 60,000 Expenses 16,000 October € Sales 91,000 Purchases 67,000 Expenses 15,000 You are given the following additional information: - Expenses are paid as they are incurred - Leaving Cert Accounting - Question 9 - 2009
Question 9
Cash Budgeting Sinead Sammon provides the following information in May 2008: € Debtors 01/06/2008 (made up of April sales €52,000 and May sales €63,000) 115,00... show full transcript
Worked Solution & Example Answer:Cash Budgeting Sinead Sammon provides the following information in May 2008: € Debtors 01/06/2008 (made up of April sales €52,000 and May sales €63,000) 115,000 Creditors 01/06/2008 44,000 Bank Balance 01/06/2008 34,000 She expects her sales, purchases and expenses for the next five months to be: June € Sales 59,000 Purchases 36,000 Expenses 12,000 July € Sales 67,000 Purchases 44,000 Expenses 17,000 August € Sales 75,000 Purchases 54,000 Expenses 14,000 September € Sales 83,000 Purchases 60,000 Expenses 16,000 October € Sales 91,000 Purchases 67,000 Expenses 15,000 You are given the following additional information: - Expenses are paid as they are incurred - Leaving Cert Accounting - Question 9 - 2009
Step 1
Prepare a cash budget on a monthly basis for the period June to October inclusive and also the total column for the period.
Answer
Cash Budget
| Month | June | July | August | September | October | Total |
|---|---|---|---|---|---|---|
| Debtors | 52,000 | 63,000 | 59,000 | 67,000 | 75,000 | 316,000 |
| Creditors | (44,000) | (36,000) | (69,000) | (48,000) | (60,000) | (257,000) |
| Expenses | (12,000) | (17,000) | (14,000) | (16,000) | (15,000) | (74,000) |
| Total Receipts | 52,000 | 63,000 | 59,000 | 67,000 | 75,000 | 316,000 |
| Total Payments | 57,000 | 84,000 | 67,000 | 64,000 | 75,000 | 348,000 |
| Net Monthly Cash Flow | (5,000) | (21,000) | (8,000) | 3,000 | 0 | - |
| Opening Bank Balance | (34,000) | (39,000) | (60,000) | (67,000) | (64,500) | - |
| Closing Bank Balance | 28,000 | 37,000 | 12,700 | 4,600 | 14,500 | - |
Step 2
Indicate what information Sinead can get from the prepared cash budget.
Answer
Information from the Prepared Cash Budget
The cash budget provides Sinead with valuable insights:
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Cash Inflows and Outflows: It shows her total cash receipts and payments, enabling her to understand how much cash is inflowing and outflowing each month.
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Surplus/Deficit Analysis: By comparing the monthly cash inflows and outflows, she can see which months have a surplus (where inflows exceed outflows) and which have a deficit (where outflows exceed inflows).
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Overdraft Situations: The closing balances indicate if there are months where the bank overdraft occurs, providing clues on financial management needed in those times.